Finding the Middle Ground

Last week we discussed the Ostrich and Meerkat Effects. The Ostrich Effect refers to the idea that some investors metaphorically bury their heads in the sand to ignore or avoid negative news while the Meerkat Effect describes investors who display the opposite behavior. When faced with a crisis, such as a market crash, ostrich investors prefer to avoid the news while meerkats become hypervigilant- obsessively looking for news and information.

However, a crisis requires a rational head, and a rational head isn’t buried in the sand nor excessively exposed to the dangers around it. A rational head is appropriately informed. So, how does one find the middle ground between being overly informed and underinformed? There are some simple strategies you can use to guide you through the virtual mountain of information and help you to optimise your information management.

Regulate, filter and limit

Less is more in today’s fast paced information flow. Unfortunately, many investors believe that the more information they receive, the better their decisions will be with many checking stock prices on their mobile phone and buying and selling stocks multiple times a day.

The constant immersion in information can lead investors to make reactive decisions based on emotion rather than logic. It is very easy to get caught up in the moment when you don’t have structure around your investment decisions.

A simple way to optimize your information management is to set operating procedures for how and when you use your information sources. What source will you check, at what time will you check it, and for how long? It is essential to stick with these procedures even during trying times.

For example, limit yourself to one or two very trusted sources of information and only look at this on the weekend when you have more time, you are relaxed and can absorb the information. This will lower unnecessary stress levels, give you more time to focus on what is important, and will ensure you make rational rather than knee jerk reactions when reviewing any market news.

Monitor yourself

Avoid the temptation to retain only the information sources that support your beliefs. This is known as confirmation bias. Also, if you find your information habits changing as a result of negative circumstances, check in with yourself.

If you are a self-identified ostrich or meerkat, there is no shame in that. But now is as good a time as any to think about how you can return to the optimal middle ground. Consider the current market crisis as an opportunity to optimise your information management, and to discover the power of well-managed information.

Toni-Ann Neita-Elliott, CFP is the Vice President, Sales & Marketing at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm   

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